Moody’s, one of the world’s most important credit ratings agencies, has struck again. For the second time in less than a week, it made a move that will have dramatic repercussions for Israel’s economy: Moody’s downgraded the ratings for Israel’s five largest banks – Leumi, Hapoalim (the workers), Mizrahi Bank, Discount and Benleumi (international).
The news comes just a few days after Moody’s downgraded Israel’s credit rating from A1 to A2, which means it was rated as upper-medium grade and low credit risk.
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The downgrade was the first time Israel’s rating had been lowered since it began being evaluated in 1998. The downgrade is significant and could have several economic implications for the country.
Avraham Simhon, an Israeli economist who has served as the chair of the Israel National Economic Council dismissed that move saying, “The fact that the markets did not react to Moody’s announcement – maybe it’s a lack of confidence. It shows the markets do not pay much attention to what Moody’s says.”
“The deteriorating public finances are not something fundamental. It’s a temporary thing. We have a war and we have to finance it. We have a war and we have to finance it. It costs a lot but we can manage it without even probably going above 70% (debt to GDP ratio).” he added.
So, this could mean the Moody’s downgrade of the five top Israeli banks will also have little negative effects.
And Simhon also dismissed the possibility that should the ongoing conflict with Hezbollah devolve into a full war like the Second Lebanon War in 2006, this still would not lead to a situation as bad as the one during the Covid crisis when Israel’s budget deficit was close to 12% of GDP. He thinks the deficit would not even hit a level of 6%.
However, according to Globes, the Israeli rating company Midrog said that it is possible that the downgrade by Moody’s might not be limited to the banks. It could also affect anyone supported by a public organization like the Electric Company.
“Moody’s left the banks’ internal financial soundness rating (BCA) unchanged, Baa2, and noted the financial soundness, capital adequacy and high profitability of the banks,” Moti Tsytrin, head of financial institutions, structured financing and other services at Midrog, told Globes. “The only thing that has changed as far as Moody’s is concerned is the assessment of the country’s ability to support banks, which is now assessed with the benefit of two rating levels (abandoning) instead of three, following the downgrading of the country’s rating from A1 to A2, with a negative outlook. So, in fact, it did not happen from the point of view of the banks themselves.”
